chapter copyright© 2007 thomson learning all rights reserved 4 managing ethical and social...

Chapter

Copyright© 2007 Thomson Learning All rights reserved

4Managing Ethical and Social Responsibility Challenges in Multinational Companies

Copyright© 2007 South-Western/Thomson Learning All rights reserved

Learning Objectives

• Know the definitions of international business ethics and social responsibility

• Understand some basic principles of ethical philosophy relevant to business ethics

• Understand how social institutions and national culture affect ethical decision making and management

• Know the definitions of international business ethics and social responsibility

• Understand some basic principles of ethical philosophy relevant to business ethics

• Understand how social institutions and national culture affect ethical decision making and management


Learning Objectives

• Understand the implications of using ethical relativism and ethical universalism

• Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act

• Understand how international agreements affect international business ethics

• Understand the implications of using ethical relativism and ethical universalism

• Identify the basic principles and consequences of the U.S. Foreign Corrupt Practices Act

• Understand how international agreements affect international business ethics


Learning Objectives

• Understand the differences among economic, legal, and ethical analyses of business problems

• Develop skills in international decision making with ethical consequences

• Understand the differences among economic, legal, and ethical analyses of business problems

• Develop skills in international decision making with ethical consequences


International Business Ethics

• Ethics deal with the “oughts” of life• Although economics dominate business decision-

making, business decisions also have consequences for people

• International business ethics: unique ethical problems faced by managers operating across national boundaries• More complex as different cultures do not agree on

what one “ought” to do

• Ethics deal with the “oughts” of life• Although economics dominate business decision-

making, business decisions also have consequences for people

• International business ethics: unique ethical problems faced by managers operating across national boundaries• More complex as different cultures do not agree on

what one “ought” to do


Corporate Social Responsibility

• Idea that businesses have a responsibility to society beyond making profits

• Closely related to business ethics• Must take into account the welfare of other

constituents in addition to stockholders

• Idea that businesses have a responsibility to society beyond making profits

• Closely related to business ethics• Must take into account the welfare of other

constituents in addition to stockholders


Exhibit 4.1: Areas of Ethical and Social Responsibility Concerns for the Multinational Company


Primary and Secondary Stakeholders

• Primary Stakeholders: directly linked to a company’s survival and include customers, suppliers, employees, and shareholders

• Secondary Stakeholders: less directly linked to the company’s survival and include the media, trade associations, and special-interest groups

• Primary Stakeholders: directly linked to a company’s survival and include customers, suppliers, employees, and shareholders

• Secondary Stakeholders: less directly linked to the company’s survival and include the media, trade associations, and special-interest groups


Ethical Philosophy

• Two ways to consider ethical decision making• Traditional ethical philosophy• Contemporary philosophy

• Two ways to consider ethical decision making• Traditional ethical philosophy• Contemporary philosophy


Basic Systems of Ethical Reasoning

• Teleological ethical theory• Morality of an act or practice comes from its

consequences• Utilitarianism: what is good and moral comes from

acts that produce the greatest good for the greatest number of people

• Teleological ethical theory• Morality of an act or practice comes from its

consequences• Utilitarianism: what is good and moral comes from

acts that produce the greatest good for the greatest number of people


Deontological Ethical Theory

• Actions have a good or bad morality regardless of the outcomes they produce

• Actions have a good or bad morality regardless of the outcomes they produce


Moral Languages

• Basic ways that people use to make ethical decisions and to explain their ethical choices

• Six basic ethical languages• Virtue and vice• Self-control• Maximizing human welfare• Avoiding harm• Rights/duties• Social contract

• Basic ways that people use to make ethical decisions and to explain their ethical choices

• Six basic ethical languages• Virtue and vice• Self-control• Maximizing human welfare• Avoiding harm• Rights/duties• Social contract


National Differences in Business Ethics and Social Responsibility

• National culture and social institutions affect ethical behavior and social responsibility

• National culture and social institutions affect ethical behavior and social responsibility


Exhibit 4.2: A Model of Institutional and Cultural Effects on Business Ethics Issues and Management


Messner and Rosenfeld Anomie Theory

• Argue that specific national culture and social institutions affect ethics• National cultures: high achievement, high

individualism, high universalism, high materialism are all related to higher deviance

• Social institutions: high industrialization, capitalist systems, lower family breakdown and highly accessible educational systems should all encourage deviance

• Argue that specific national culture and social institutions affect ethics• National cultures: high achievement, high

individualism, high universalism, high materialism are all related to higher deviance

• Social institutions: high industrialization, capitalist systems, lower family breakdown and highly accessible educational systems should all encourage deviance


Exhibit 4.3: Comparison of Key Ethical Issues Identified by Senior U.S. and EU Managers


Exhibit 4.4: National Differences Regarding Ethical Codes


Questionable Payments

• Questionable payments• Bribes or gifts to expedite government actions or to

gain advantage in business deals• In many countries, people routinely offer gifts of bribes

• Questionable payments• Bribes or gifts to expedite government actions or to

gain advantage in business deals• In many countries, people routinely offer gifts of bribes



• Corruption and bribery can have devastating effects on societies

• Companies routinely use poorer-quality products or materials to cover for the bribe, thus resulting in inferior products

• Corruption can also result in collusion among firms, resulting in even higher prices

• Corruption and bribery can have devastating effects on societies

• Companies routinely use poorer-quality products or materials to cover for the bribe, thus resulting in inferior products

• Corruption can also result in collusion among firms, resulting in even higher prices



• To understand the level of corruption in countries, multinational companies can rely on the Corruption Perception Index (CPI)

• CPI developed by Transparency International, gives an idea of the levels of perception of corruption within countries

• To understand the level of corruption in countries, multinational companies can rely on the Corruption Perception Index (CPI)

• CPI developed by Transparency International, gives an idea of the levels of perception of corruption within countries


Exhibit 4.5: The CPI for Selected Countries


Exhibit 4.6: Bribe Payers Index


U.S. Foreign Corrupt Practices Act (FCPA)

• Forbids illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business

• Forbids illegal payments or gifts to officials of foreign governments for the sake of getting or retaining business


Exhibit 4.7: Excerpts from the Foreign Corrupt Practices Act and Fines


U.S. Foreign Corrupt Practices Act (FCPA)

• Does not prohibit some forms of payments that may occur in international business• Payments made under duress to avoid injury or

violence are acceptable• Tricky component is the reason-to-know component

• Firms are liable for bribes even if bribes are made by agents of company

• Does not prohibit some forms of payments that may occur in international business• Payments made under duress to avoid injury or

violence are acceptable• Tricky component is the reason-to-know component

• Firms are liable for bribes even if bribes are made by agents of company


Ethics Gap

• More coercive and normative pressure for U.S. businesses to follow ethical standards

• Recent evidence suggests that FCPA has not necessarily caused U.S. business to fall behind.

• More coercive and normative pressure for U.S. businesses to follow ethical standards

• Recent evidence suggests that FCPA has not necessarily caused U.S. business to fall behind.


Toward Transnational Ethics

• Ethical convergence: growing pressure to follow the same rules in managing ethical behavior and social responsibility

• Ethical convergence: growing pressure to follow the same rules in managing ethical behavior and social responsibility


Four Basic Reasons for Ethical Convergence

1. The growth of international trade and trading blocks2. Increased pressures to imitate business practices3. Varied cultural background employees require

common standards4. An increasing number of business watchdogs

1. The growth of international trade and trading blocks2. Increased pressures to imitate business practices3. Varied cultural background employees require

common standards4. An increasing number of business watchdogs


Prescriptive Ethics

• Suggested guidelines for the ethical behavior of multinational companies

• Three moral languages • Avoiding harm • Rights/duties• Social contract

• Three languages work irrespective of national backgrounds

• Suggested guidelines for the ethical behavior of multinational companies

• Three moral languages • Avoiding harm • Rights/duties• Social contract

• Three languages work irrespective of national backgrounds


International Ethics Guideline Sources

• The United Nations Universal Declaration of Human Rights

• The United Nations Code of Conduct on Transnational Corporations

• The European Convention on Human Rights• The International Chamber of Commerce Guidelines

for International Investment

• The United Nations Universal Declaration of Human Rights

• The United Nations Code of Conduct on Transnational Corporations

• The European Convention on Human Rights• The International Chamber of Commerce Guidelines

for International Investment


International Ethics Guideline Sources

• The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises

• The Helsinki Final Act• The International Labor Office Tripartite Declarations of

Principles Concerning Multinational Enterprises and Social Policy

• The Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises

• The Helsinki Final Act• The International Labor Office Tripartite Declarations of

Principles Concerning Multinational Enterprises and Social Policy


Exhibit 4.8: A Code of Conduct for the Multinational Company


Two Basic Rationales for the Code of Conduct for the Multinational

• Basic deontological principles dealing with human rights

• History of experiences in international business interactions

• However, despite the existence of extensive agreements, multinationals may not always follow ethical principles.

• Basic deontological principles dealing with human rights

• History of experiences in international business interactions

• However, despite the existence of extensive agreements, multinationals may not always follow ethical principles.


Why Multinationals Might Not Follow Ethical Principles

• Governments make agreements• The agreements have only voluntary compliance• Not all governments subscribe to the agreements• Each agreement is an incomplete moral guide to the

company

• Governments make agreements• The agreements have only voluntary compliance• Not all governments subscribe to the agreements• Each agreement is an incomplete moral guide to the

company


“Best Practices” Steps

• Leading by example• Making ethics part of the corporate culture• Involving employees at all levels• Setting and monitoring goals• Effective integration in business processes• Open discussion of ethics and other ethical issues• Governments make agreements

• Leading by example• Making ethics part of the corporate culture• Involving employees at all levels• Setting and monitoring goals• Effective integration in business processes• Open discussion of ethics and other ethical issues• Governments make agreements


The Ethical Dilemma in Multinational Management: How Will You Decide?

• Ethical relativism vs. Ethical universalism• Ethical relativism: each society’s view of ethics must

be considered legitimate and ethical• Ethical universalism: basic moral principles that

transcend cultural and national boundaries• Difficulty in following either ethical relativism or

universalism

• Ethical relativism vs. Ethical universalism• Ethical relativism: each society’s view of ethics must

be considered legitimate and ethical• Ethical universalism: basic moral principles that

transcend cultural and national boundaries• Difficulty in following either ethical relativism or

universalism


Convenient Relativism

• Companies have a higher responsibility than ethical relativism

• However, some companies use the logic of ethical relativism to behave any way they please• Use the excuse of differences in cultures

• Companies have a higher responsibility than ethical relativism

• However, some companies use the logic of ethical relativism to behave any way they please• Use the excuse of differences in cultures


Individual Ethical Decision Making for the Multinational Manager

• Forms of analyses• Economic analysis: focuses on what is the best

decision for a company’s profits• Legal analysis: focuses on only meeting legal

requirements of host and parent countries• Ethical analysis: goes beyond focusing on profit

goals and legal regulations

• Forms of analyses• Economic analysis: focuses on what is the best

decision for a company’s profits• Legal analysis: focuses on only meeting legal

requirements of host and parent countries• Ethical analysis: goes beyond focusing on profit

goals and legal regulations


Exhibit 4.9: Decision Points of Ethical Decision Making in Multinational Management


Individual Ethical Decision Making

• Purely ethical issues must be weighed against economic and legal analyses.

• However, multinational managers are guests in other nations.• Ethical decision making must go beyond legal

constraints.

• Purely ethical issues must be weighed against economic and legal analyses.

• However, multinational managers are guests in other nations.• Ethical decision making must go beyond legal

constraints.


Individual Ethical Decision Making

• There is no single accepted ethical theory that managers can use.

• There are generally accepted theories that can be used as guides, however.

• Such ethical analyses can help raise managers’ awareness of ethical issues.

• There is no single accepted ethical theory that managers can use.

• There are generally accepted theories that can be used as guides, however.

• Such ethical analyses can help raise managers’ awareness of ethical issues.


Conclusion

• Multinational managers face ethical dilemmas similar to their domestic counterparts

• Chapter provides background on business ethics• Challenges are magnified by the complexity of working

across different countries and cultures

• Multinational managers face ethical dilemmas similar to their domestic counterparts

• Chapter provides background on business ethics• Challenges are magnified by the complexity of working

across different countries and cultures

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